Devon and WPX Stocks Climb on News the Oil Producers Will Merge

Shares of Devon Energy and WPX Energy were making gains in early trading Monday after the two exploration-and-production companies announced they would merge in an all-stock deal.

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Shares of Devon Energy and WPX Energy were making gains in early trading Monday after the two exploration-and-production companies announced they would merge in an all-stock deal.

The news was welcome news for investors of the two companies, both based in Oklahoma. Their stocks have declined more than 60% this year.

Devon’s stock (ticker: DVN) was at $9.15 in early trading on Monday, up 4% from Friday’s close. WPX was at $4.65, up 4.6%. The Dow Jones Industrial Average was up 1.4%.

“The overlap in the two companies’ footprints, most notably their acreage in the Delaware Basin, and their respective headquarters in Oklahoma, could provide opportunities for synergies and lower leverage over time,” according to a Goldman Sachs credit research note on Monday.

The Delaware basin is in western Texas.

Devon sports a market capitalization of about $3.4 billion, compared with $2.5 billion for WPX. But in a Devon news release, the deal was billed as a merger of equals. The combined company will take the Devon name.

The release said the deal would be accretive in the first year, give the combined company more scale, and provide expected cost savings that will “drive $575 million of annual cash flow improvements” by the end of next year.

Dave Hager, Devon’s president and CEO, will be appointed executive chairman of the board. Rick Muncrief, the top executive at WPX and its chairman, will be named president and CEO of the combined company.

“Bringing together our asset bases will drive immediate synergies and enable the combined company to accelerate free cash flow growth and return of capital to shareholders,” Hager said in a statement.

The share prices of these two companies have suffered this year along with those of most energy firms because of weak commodity prices, including crude oil. The economic fallout of Covid-19 has been a big contributor.

As of Friday’s close, WPX stock was down nearly 70%, compared with a loss of about 65% for Devon. The S&P 500 is up 2.1% year to date through Friday.

The Goldman Sachs research note observes that “we see the potential for the resultant [credit] ratings of a combined entity to meet the criteria for Investment Grade”—potentially helping boost the price of WPX debt that is due in the 2030s.

 

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nasdaq wrote: Energy stocks are set to open mixed to higher, backed by gains in U.S. stock index futures which extended Friday’s rally as investors hope for further stimulus from Congress which could be voted on as soon as this week while oil prices trade moderately higher.

In sector news, oil and gas producer Devon Energy Corp said it will buy Permian basin peer WPX Energy for $2.56 billion as it looks to scale up its presence in the Delaware portion of the prolific shale field. The deal values WPX at $4.56 per share, just 2.7% higher than the stock's closing price on Friday. Devon said the combined company will hold an acreage position of 400,000 net acres in the Delaware and will have a capacity of producing 277,000 barrels of oil per day.

Both WTI and Brent have come off their lows of $39.85 and $42.00, respectively, supported by gains in the equity markets. Both benchmarks are on track for their first monthly decline since April as rising COVID-19 cases continue to spur concerns about demand. "Dollar strength and macroeconomic uncertainty are likely to keep dominating oil's agenda this week," said BNP Paribas analyst Harry Tchilinguirian, noting a firming dollar has helped mitigate recent losses. Russian Energy Minister Alexander Novak said that the global oil market has been stable for the past few months and the demand-supply balance restored, but warned of the risks of a second wave of COVID-19 cases.

Natural gas futures are off 3%. Pipeline data indicates Cameron LNG is attempting to restart. Total LNG feedgas flows yesterday were estimated to have come in at around 6.7 Bcf/d, roughly unchanged from Sat and +0.4 Bcf/d vs Friday. 

 

 

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INTERNATIONAL INTEGRATEDS 

Press Release - Total announced that it has reached an agreement on September 24th, 2020 to transfer to Petrobras its equity interest in five exploration blocks in the Foz do Amazonas Basin, located 120 kilometers offshore Brazil. These blocks are referenced as FZA-M-57, FZA-M-86, FZA-M-88, FZA-M-125 and FZA-M-127. The closing of the transaction is subject to the preemption rights of partners in the blocks and standard regulatory approvals.

(Late Friday) Reuters - Total is preparing to restart next week the gasoline-producing fluidic catalytic cracker (FCC) at its 225,500-barrel-per-day (bpd) Port Arthur, Texas, refinery.

U.S. E&PS 

Press Release - Devon Energy and WPX Energy announced they have entered into an agreement to combine in an all-stock merger of equals transaction. The strategic combination will create a leading unconventional oil producer in the U.S., with an asset base underpinned by a premium acreage position in the economic core of the Delaware Basin. The combined company, which will be named Devon Energy, will benefit from enhanced scale, improved margins, higher free cash flow and the financial strength to accelerate the return of cash to shareholders through an industry-first “fixed plus variable” dividend strategy. Under the terms of the agreement, WPX shareholders will receive a fixed exchange ratio of 0.5165 shares of Devon common stock for each share of WPX common stock owned. The exchange ratio, together with closing prices for Devon and WPX on Sept. 25, 2020, results in an enterprise value for the combined entity of approximately $12 billion. Upon completion of the transaction, Devon shareholders will own approximately 57 percent of the combined company and WPX shareholders will own approximately 43 percent of the combined company on a fully diluted basis.

OILFIELD SERVICES

Press Release - Milaha has entered into a formal agreement to cooperate with leading American oilfield services firm, Schlumberger. The Offshore & Marine pillar of Milaha signed a Memorandum of Understanding (MoU) that will support value building projects while jointly driving Tawteen initiatives for Qatar. Led by Qatar Petroleum, the “Tawteen” program aims to localize the energy sector’s supply chain and create new investment opportunities to retain ‘economic value’ in Qatar.

REFINERS

Credit Suisse downgraded PBF Energy to ‘Underperform’ from ‘Outperform’.

Tudor Pickering Holt upgraded Marathon Petroleum to ‘Hold’ from ‘Sell’.

MLPS & PIPELINES  

Press Release - Inter Pipeline announced that it has agreed to acquire the Milk River pipeline system from Plains Midstream Canada ULC, a wholly owned subsidiary of Plains All American Pipeline, L.P., in exchange for its 100 percent ownership interest in the Empress II and 50 percent ownership interest in the Empress V straddle plants. Plains will also pay Inter Pipeline cash proceeds of $35 million. Closing of this transaction is expected to occur in early 2021 following completion of customary conditions.

MARKET COMMENTARY

Wall Street futures rose as hopes of a global economic recovery were supported by data showing continued growth in China's factory activity. European shares rose, helped by a jump in German lender Commerzbank after it appointed a new chief executive officer. Japan’s Nikkei closed higher following bigger appetite for stocks that were set to go ex-dividend this week. The euro rose against the dollar, while gold fell. Oil prices were in the green.

NASDAQ ENERGY TEAM THOUGHT LEADERSHIP

1/8/20 – CNBC’s Squawk Alley: Oil market reaction to US-Iran tensions

1/8/20 – Bloomberg Day Break – Steady escalation of US-Iran tensions

12/5/19 – Bloomberg Balance of Power – OPEC's Limited Efficacy

9/17/19 - Oil's New Risk Premium Discussion on CNBC TV

9/16/19 - Discussion on Bloomberg TV about Impact of Abqaiq Attack

Nasdaq Advisory Services Energy Team is part of Nasdaq's Advisory Services – the most experienced team in the industry. The team delivers unmatched shareholder analysis, a comprehensive view of trading and investor activity, and insights into how best to manage investor relations outreach efforts. For questions, please contact Tamar Essner.

This communication and the content found by following any link herein are being provided to you by Corporate Solutions, a business of Nasdaq, Inc. and certain of its subsidiaries (collectively, “Nasdaq”), for informational purposes only. Nasdaq makes no representation or warranty with respect to this communication or such content and expressly disclaims any implied warranty under law. Sources include Reuters, TR IBES, WSJ, The Financial Times and proprietary Nasdaq research.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

 

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